Business group affiliation and fdi spillovers

Abstract

Recent studies have pointed to several advantages business group-affiliated firms enjoy over their standalone counterparts, a prominent one being their access to a network of tightly connected diverse firms. Business group- affiliated firms have access to the diverse resource and knowledge bases of other group firms, and importantly, to the combinatorial opportunities that arise thereof. But is there a downside to this intra-group network advantage? Could the strong social and economic ties that bind group-affiliated firms also blindside them from valuable external sources of knowledge? In this paper, we examine whether business group affiliation helps or hinders affiliated firms in agglomerating and combining knowledge from an external source, specifically, from collocated foreign firms. Our analysis of knowledge spillovers from foreign firms in India to group-affiliated and standalone domestic firms over the period of 2002 - 2011 suggests that, while the internal ties between group firms may allow for recombination of knowledge held inside the network, those very ties can also shield group firms -- viz-`a-viz their standalone counterparts -- from agglomerating external knowledge.